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Islamic Economic System: A Critical Analysis ABSTRACT Islamic Economic System: A Critical Analysis ABDUL WAHAB ARAIN Research Scholar (Ph.D), Hamdard University, Karachi, Pakistan The economic system operated according to the principles of The Holy Quran and Sunnah, is called Islamic economic system. As per the guidelines provided in the Holy Quran and Sunnah of the Holy Prophet (S.A.W.S), the Islamic principles of economics are based on social and economic justice and equitable distribution of income and individual freedom related to social welfare. As per majority of Muslim scholars, there is similarity between Capitalism and Islamic economic system. According to Islamic economics, the private property is a trust (Amanah), bestowed by Allah, the Almighty, as sovereignty belongs to Him, which they (people) manage on behalf of Allah. On the other hand, Capitalism aims at providing the use of resources to keep the output at minimum level of cost ensuring full utilization of the resources. The equal distribution of wealth/ economic resources is based on the principles of Sharing of financial resources by the rich people among the needy ones as directed by Allah, the Almighty. The implementation of the principles of Islamic economy will lead to the economic development in the society. Allah Subhanhu wa Taala, being the creator and protector of the rights and needs, has been providing livelihood, food , water and other resources to all His creatures, including Human beings since Life on the earth, no body lives without food. However, the detailed analysis shows that neither the question of elimination of riba has been addressed nor the payment or collection of Zakat has any impact on the economic development due to mismanagement. Besides, the banks and financial institutions have failed to abolish or minimize interest from the economy. It is suggested that the Islamic Scholars, economists, legal experts and social scientists must play their role for Islamization of the economy and establishment of a just society. Further, the principles of Islam may be implemented in the economy in letter and spirit, all the evils in the society including riba will be eliminated and justice, equality and welfare ensured. Key Words: Economic System, Quran, Sunnah, Zakat, Riba Introduction Economics is generally defined as a social science, studying human behavior as a relationship between ends and scare means which have alternate uses. The economic system of Islam deals with the economic activities based on the principles of Islam which ensure social and economic justice, human brotherhood, equitable distribution of income and welfare of the society. Islam being a complete code of life has laid down principles of economics. According to Islam, every thing created by Allah the Almighty, on the earth including human beings belongs to Him. Every body is provided with food and livelihood, nobody lives without food. Islam provides necessary framework which regulates the methods of earning money and spending the same. The economic system of Islam allows free market economy, deciding demand and supply accordingly. But at the same time Islam also imposes certain restrictions on the Muslims as follows: The Muslims who earn wealth upto certain limit, are required to pay Zakat at 2.5%, once a year compulsorily, which is paid to the poor and needy people of the society and this way financially weak people are supported, ensuring proper distribution of income. This also contributes to promote social justice in the society. It is also the responsibility of the Islamic State to manage the resources of the State in such way that every citizen may get the benefits of the Government policy, protecting their rights and basic needs. Riba (Interest) is prohibited by Islamic Laws (Shariah), therefore no individual or business concern is allowed to deal with the interest-based transactions, gambling of any kind(Qimar, Maysir), which is based on uncertainty (Gharar) is also prohibited. Likewise, business involving insurance is also not permissible. LITERATURE REVIEW Related literature was reviewed which shows that understanding of economic system of Islam is very important and efforts have been made by the eminent religious scholars and economists to study the economic system with reference to Quran and Sunnah, its difference from the Conventional economics, prohibition of riba, earning and distribution of income. Mohammad Nejatullah Siddiqi (2006) considering the role of Shariah experts played in the progress of Islamic economics and finance, suggests that there has been some mal-functioning, which needs to be looked into and corrected accordingly. M. Akram Khan (1984) contended that Islamic economics aimed at the study of human falah achieved by organizing the resources of earth on the basis of cooperation and participation. According to Asad Zaman (2008) Islamic Law (Shariah) provides the framework for all activities within an Islamic society. In Islamic domain, Islamic Law regulates both methods by which money may be earned and also the ways it may be spent. METHODOLOGY After careful review, the qualitative research methodology has been selected for defining the actuality of in growing research in the market from theoretical point of view. This study relating to Islamic economic system from the pioneers of the modern era, as cited above in the literature review, have been taken being the engrained principle for understanding, collecting, analyzing and applying data to prove central idea of implementation and proposal for executable usage of the Islamic economic principles, even for the guidance of economic institutions and novice. According to the Holy Quran and Sunnah, all aspects of economic, political and social legislation have been fully explained. It has also been explained that Allah, the Almighty has directed to follow all the Islamic laws without choosing some and leaving others on self-desires. Due to non-following the Islamic principles, most of the Muslim countries are facing high unemployment rates, hampering economic growth. Many Muslim countries, particularly African and Asian countries are facing poverty, despite the fact that the Muslim countries own major share of Oil and Gas reserves and very rich agricultural lands of the world. On the other hand, the developed countries have made progress in industry and all other fields that are applying advanced technologies. Majority of Muslim countries depend on borrowing from the World Bank and developed countries. Under the circumstances, the Islamic economic system is a ray of hope and an alternative for achieving economic growth, reducing poverty, unemployment and dependence on external financing. Main features of Islamic Economic System and its Comparison with other Economic Systems. The Economic Systems such as; Capitalism, Communism, Socialism and Mixed Economy are based on materialistic concept, these systems do not consider for human social life. Whereas, under the Islamic system, the Muslims are required to live material life but having consideration for happiness and respect for others to succeed in this world and for hereafter. In Islamic Economic System, Institutions, Organizations and social values are taken into consideration for producing, exchanging distribution and consumption of wealth. Further, goods and services are utilized, observing the basic principles of Islam so that welfare(FALAH) may be achieved for the society. There are the following features of Islamic Economic System: 1) Private Property. 2) Consumption, Production and Distribution of wealth. 3) The Concept of Zakat 4) Interest-free Economy. 5) Economic Growth 6) Role of the Government. 1) Private Property In Islam, the basic principles for having private property is based on the concept of “Halal” and “Haram” for earning money and in production and consumption of wealth. The property can not be used against the public interest and payment of Zakat is compulsory for wealthy Muslims. 2) Consumption, Production and Distribution of Wealth. In Islamic way of life, the fear of Allah, helps in differentiating between Halal and Haram, Bukhal and Israf, hence; hence luxurious way of life is not adopted. Similarly, Islam prohibits production and distribution of drugs, gambling lottery, lending and borrowing on interest, black marketing and smuggling etc.In Islamic economic system distribution of wealth is also free of Bukhal and Israf. Besides, Zakat is mandatory for rich Muslims, fair distribution of wealth is ensured. 3) The Concept of Zakat Payment of Zakat is mandatory for Wealthy Muslims on goods and money every year, which is a source of revenue for the Islamic State. This amount is paid to the poor and needy people of the society. 4) Interest-free Economy The financial system run on Sharakat and Mudarabat in an Isslamic State is called interest-free economy. 5) Role of the Government It is the responsibility of the Islamic Government to check and stop the un-Islamic activities like smuggling, gambling, sale of alcohol and hoarding etc. The poors be provided social and economic security and equal job opportunities. Comparison of Islamic Economic System with Other Economic Systems In fact the characteristics of Capitalism and Socialism are available in Economic System of Islam but the difference is that the Islamic system is free from the evils of other economic systems; which is discussed below: Capitalism 1) There is economic freedom to producers and consumers. 2) Unlimited liberty and right of ownership for private property to everybody, which results in capitalization and exploitation of workers. 3) The Capitalists allows everything to be consumed. 4) Due to free competition and right of ownership, wealth is accumulated in few hands. 5) Under Capitalism, main purpose is profit maximizing on producing goods. Socialism Economic equality is achieved through State ownership Communism Only consumer goods and services are allowed to be produced. 2) The Central authority decides what to produce and how much to produce. 3) No liberty to workers, they are treated as machines. 4) No role of interest for saving and investment. Islamic Economic System Economic and Social justice for all citizens, private ownership and freedom is allowed but for the short period. In Islam only Halal commodities are allowed, and Haram goods like; alcohol and drugs are prohibited. According to Islamic economic model, free competition, investment in human capital and economic and social infrastructure, long-term planning for water supply, electricity generation, road infrastructure, hospitals and airports etc are important elements. Every economic model needs certain laws for implementation and reinforcement of contracts. The Islamic economic system is regulated under the supremacy of Allah the Almighty. Islamic laws prohibit riba (interest), alcoholic drugs, gambling and every kind of unlawful business. However, it is a sad fact that the abovementioned important elements of Islamic economic model have been left behind by the Muslim world and the element prohibited by Shariah, have been adopted in its place, which has pushed them far behind the industrial countries in economic development; although the Muslim countries are rich in natural resource, speciallyil and Gas. If the Muslim countries adopt the Islamic principles of economy in letter and spirit, they would succeed in achieving economic development. According to Islamic teachings, economic policy of Islam has been explained in the following Verses of the Holy Quran: “So that this (wealth) may not circulate among the rich from among you” (59:7). It shows the difference between commercial gains and interest on money lending. In another Verse, Quran says, “If you do not give up (interest), then be Warned of war against God and His Messenger and if ye repent, then ye shall have your principal amount, without interest, neither ye wrong nor be wronged” (2:279). A renown Scholar Shah Nawaz Khan says, “The problem is that despite efforts for developing a separate discipline of Islamic economics, there is not much that can be genuinely called `economics`. Most of Islamic economics consists of theology on economic matters." He further says that Criticizing the importance of the approval by Islamic scholars for Islamic banking transactions (or "fatwa shopping"), journalist John Foster, quotes an "investment banker based in Dubai" as saying, “We create the same type of products that we do for the conventional markets. We then phone up a Sharia scholar for a Fatwa [seal of approval, confirming the product is Shari'ah compliant]. If he doesn't give it to us, we phone up another scholar, offer him a sum of money for his services and ask him for a Fatwa. We do this until we get Sharia compliance. Then we are free to distribute the product as Islamic.” (Source wikipedia) Foster explains that the fee for services provided by "top" schors is "often" in six-figures, i.e. over US $ 100,000/- Islamic Banks in the Western World In order to attract rich people from Muslim world, these days many financial institutions in the Western world, offer financial services and products in accordance with Islamic finance. For example, Chancellor Gordon Brown in 2003 introduced legal changes that enabled British banks and building societies to offer so-called Muslim mortgages for house purchase. CONCLUSION According to Islam, not only the market forces function but a mechanism is also devised, which keeps them operative with their natural force without their being affected by monopolies. There are two types of controlling the economic activities as follows: Firstly, as per divine injunctions, the limits of halal and haram are clearly defined. These Islamic laws prevent monopolies and curb the unjust and immoral earnings and commercial activities detrimental to the collective interest of the society. As a result, the savings of the common people are activated to achieve economic development and the Islamic instruments like musharakah and mudarabah, will be used, instead of interest and the common people directly share the fruits of development which will bring prosperity in the society which will reduce the gap between the rich and the poor. Secondly, the payment and distribution of zakat and sadaqat and certain other financial obligations, provide income to the poor and needy people who could not earn enough, due to insufficient market opportunities. This ensures proper control over the wealth, by keeping it under constant circulation and at the same time, eliminating the chances of accumulation in few hands. But the sad fact is that the principles of Islamic economy are not being followed in letter and spirit, the Muslim countries are not making streneous efforts to structure their economy according to the Islamic principles. It is hoped that the Muslim countries will reconsider the importance of the matter and restructure their economy according to the devine guidance provided by the Qur'an and Sunnah, we will Succeed in achieving economic growth and prosperity. REFERENCES 1. Usmani, Mufti M Taqi(2015).The Economic Chellenge for the Ummah. (www.albalagh.net/Islamic economics). 2. Khan,Shah Nawaz(2015).The Myth of Islamic Economic System. 3. Zaman,Asad(2008).Islamic Economic: A Survey of the Literature. 4. Shams, Rasul(2004).A Critical Assessment of Economics of Islam-HWWA Discussion Paper. 5. Maududi,Abul Aala(1948).Islam101.Talk on Radio Pakistan, Lahore.(www.jamaat.org)Khan, 5 6.M.Akram(1984).Islamic Economics: Nature and Need.J.Res.Islamic Econ.,Vol.1, No.2, pp.51-55 7. Shariah Fundamentals of an Islamic Economic Order 8. Hamidullah, Dr. Muhammad((2010).The Economic System of Islam,”Introduction to Islam”Chapter 10. 9. Siddiqi, Dr. Mohammad Nejatullah(2006).Shariah, Economics and the Progress of Islamic Finance: The Role of Shariah Experts. 10. Imamuddin,Saeed Ahmed and Arain Abdul Wahab(2016).Principles of Islamic Economics in the Light of the Holy Quran and Sunnah.ijhss Vol.5 Issue 5, pp48-54. 11. Nursi, Bediuzzaman Said(2012).What should economic systems, principles and basic rules be like according to Islam? The Risale-I-Nur 12. Azmi, Dr.Sabahuddin(2011). An Islamic Approval to Business Ethics.ISSN 16050045.([email protected]). 13. Malik, Muhammad Abdul(2015). Economic System of the Quran. 14. Yasini, Marfatul Haq(2015).The Economic Order of Islam. The Pen Magazzine. 15. Neihaus, Volker*(2010).Fundamentals of An Islamic economic system compared to the Social Market Economy. A system Overview.KAS International Reports-pp75-96.